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'A Lot of Interest' in TransCanada Mainline Conversion

An idea to convert some of TransCanada Corp.'s Mainline from natural gas to oil service is getting some traction among prospective customers, but it is still early days, a company pipeline executive said during a second quarter earnings conference call.

TransCanada CEO Russ Girling talked about the idea in April during the company's first quarter earnings call (see NGI, May 7), and Alexander Pourbaix, president of energy and oil pipelines, picked up the thread when responding to an analyst's question during last week's second quarter earnings call.

"...[W]e are looking pretty hard at an opportunity to transfer some of our Mainline pipeline from gas transportation service to oil transportation service," Pourbaix said. "We're still in the relatively early stages of that...We believe it is very technically feasible, and we believe the resulting tolls from that project are very competitive with other competing projects to get Canadian oil to markets...both in and outside of Canada. We have a lot of optionality with respect to the size."

A crude oil pipeline making use of gas Mainline pipe in the ground could be developed to carry from 400,000 b/d up to about 900,000 b/d, he said. TransCanada already has about 80% of the pipe that would be needed in the ground, "which we think gives us a significant advantage going forward," Pourbaix said, "and then the opportunity we could build incremental pipeline anywhere from Montreal potentially all the way to the Canadian East Coast."

TransCanada is "getting a lot of inbound interest from potential shippers on the project, but we have a fair bit of work to do to lock all of that down," he said.

Transported gas volumes on the company's Mainline have been declining, and TransCanada has suffered for it. First half earnings were off by C$115 million (17 cents/share) compared with the year-ago period reflecting in part weaker results from Canadian gas pipelines "primarily due to lower earnings from the Canadian Mainline..." the company said.

Last June Canada's National Energy Board began a hearing to address the company's application to change the business structure and the terms and conditions of service for the Mainline, including addressing tolls for 2012 and 2013. TransCanada said the hearing is expected to conclude at the end of September, with a decision expected in late 2012 or early 2013.

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